Defences presented by eight insurers which refused to pay claims on business interruption (BI) policies following the Covid-19-imposed lockdown have been rejected by the FCA. The group of insurers includes Hiscox, Arch Insurance, Argenta Syndicate, Ecclesiastical, QBE UK, Royal & Sun Alliance and Zurich Insurance, many of which argued that policies were not designed to cover pandemics, and that businesses would have likely suffered the same losses if they had remained open during the lockdown.

The FCA received over 90 submissions from policyholders and other stakeholders commenting on the insurers’ defences, which it considered when drafting its response.

It has been reported that in the test case brought forward by the High Court, the FCA dictated that defences fail to account for the true nature of the insurance sold to buyers – often small businesses and unsophisticated buyers of insurance with low limits of indemnity for BI cover.

The FCA accused the insurers of adopting ‘unduly restrictive’ meanings of particular words such as ‘prevention’ and ‘occurrence’, and argued that their defences rely on ‘approaches to proof as to the presence of Covid-19’ and ‘causal tests prescribing unrealistic, impractical counterfactuals, depriving the cover clause of much of its apparent and intended scope’: “None of which reflects what the reasonable person in the position of the parties would understand.”

Back in May, a French court ruled that AXA should pay a restaurant owner two months’ worth of revenue losses caused by the coronavirus outbreak, despite AXA arguing that its policy did not cover business disruptions resulting from the health crisis. Rulings like this provide a ray of hope for the hospitality industry, and other businesses, that they may yet recover from the severe impact of the Covid-19 pandemic.

An update on the FCA case is expected on the 10 July.